Beneath the Iceberg: The Psychology of the Recession (and a silver lining)
(The psychology majors know where this post is headed, for the rest of you check out this picture for the iceberg reference.)
It’s pretty clear that we are now in a recession, and, without going into the doom and gloom of recent job loss and foreclosure statistics, I’d like to discuss what goes on underneath all the talk of the recession.
Fear. This seems to be a pretty common theme in recent talks about the recession around friends, family members, even the media and internet. Negative reactions and mindsets have developed in an environment where we should remain still and adhere to conventional financial wisdom and save more, spend less. But so many are wired to the news outlets which preach mostly doom and gloom which then fuels more fear and concern.
Job Loss and Unemployment
The truth is, many are afraid they will be the next ones on the chopping block. And, unless they have F-U money, with recent lay offs, everyone is concerned on some level or another. Walking into work everyday has become akin to putting their necks on a chopping block and hoping their bosses ill spare them yet another day. For some, this has become unbearable, often wishing they would be the first to go so they won’t have to endure the uncertainty of an impending lay-off or downsizing.
So, while friends may seem ok, some may be concerned about the recession, perhaps more than they let up on the surface. Now is the time to open up dialogue amongst friends and co workers in efforts to support one another and discuss alternative financial plans. You’d be surprised the comradeship that develops once people begin sharing fears and concerns and then discuss how to move past them.
Rising Costs of Gas
I don’t know about the rest of you but that $4.00 a gallon of gas is looking like a real possibility with the $3.37 per gallon I racked up last night. So many are frustrated with the high cost of fuel and even the truck drivers striking in an effort to call attention to their plight.
We’re talking about independent truck drivers who say prices are out of control. If you’re a diesel truck driver, it’s closer to 4-something a gallon and now you’re paying anywhere from $700 to $1000 to fill up and independent truckers say that’s too much.
People are frustrated every where you turn. Here in DC, many more are turning to carpooling with neighbors and co-workers in an effort to save money on gas, and even the metro looks more attractive even though I really hate taking it into my internship site. I’d rather drive but the fact remains that it’s becoming really expensive to drive into my site and then to class and back home.
I don’t know that I’ve lived through a time where personal finance more important to me than it is right now. While the psychology of the recession has me focused on the fears of many, this has also been a time of reverting back to solid financial wisdom:
- Save more by paying yourself first
- Spending less than you earn
- Seek out ways to increase your bottom line and/or paycheck
- Save for retirement now and not later
- Keep abreast as to career news and opportunities. Ears to the ground as I like to call it. Keep a fresh copy of your resume handy and network with others about openings within your field
I think it’s safe to say that we have hit the proverbial iceberg, but this is an opportunity for us to understand and change our patterns of consumption and undesirable financial habits. Fears of unemployment and stocks plummeting abound, but personal finance wisdom remains the same. Try to find alternative methods of coping through downsizing, getting part time job and/or paying down debt.
Silver Lining. Keep in mind that the market is cyclical. We have on average experienced recessions every 9-10 years.
- January-July 1980: 6 months chart (worst quarter GDP Growth -7.8% spreadsheet)
- July 1981-November 1982: 16 months chart (worst quarter GDP Growth -6.4%)
(Source)
This time around, it came a bit earlier than even I had anticipated, but with the housing market booming the way it did, this was bound to happen. The upside is that we always get through it and hopefully this has gotten most out of the routine of complacency. Times like these often force people to re-evaluate their career paths, often choosing for change instead of complacency.
Times are hard now but saving money, living below your means is key and keeping your options open are key. That’s it! Even if you lose your job tomorrow, if you’ve been saving wisely then you have a cushion to get you through the next few months or perhaps the rest of the year. If you recently lost your job, look at this as a reason to evaluate your career path, perhaps this is the time time to return to school and complete your degree or catch up on the latest certifications in your field. So while this is a depressing time, know that as with everything, this too shall pass, just be prepared to weather the storm.
Have you been through a recession prior to this? How did you make it through? What advice do you have for younger readers on how to get through these tough economic times?
About the Author: Girls Just Wanna Have Funds is for the woman that wants to take charge of her personal finances. We value budgeting, investing, frugality and remain mindful of our spending habits. Move over and make way for women who are in control of their financial destinies and not afraid to say it. We're armed with a positive net worth and not afraid to flaunt it while breaking financial ceilings one stiletto at a time!
Seb (2 comments.) | Apr 8, 2008 | Reply
While we haven’t been hit with layoffs yet, my wife and I have decided to cut down on our entertainment budget (movies, concerts, ball games, etc.) and redirect that money to our savings.
She’s an architect, and I work in the banking industry. Not the safest job markets to be in at the moment.
Lynnae (1 comments.) | Apr 8, 2008 | Reply
Excellent article! It seems like everyone is worried about the economy these days, but like you said, we need to look for the silver lining and use this time to re-think our habits.
Thanks for the link!
Mom @ Wide Open Wallet (6 comments.) | Apr 8, 2008 | Reply
We haven’t seen layoffs either (*knock wood*) but just the lack of overtime and been enough to make us uncomfortable.
savvy (9 comments.) | Apr 8, 2008 | Reply
I guess age and experience have given me a bit of a laissez-faire attitude. We haven’t changed our finances given the current environment. The last I checked we weren’t actually in a recession by the true definition of the term. Nevertheless, I think your advice is spot on.
I worked in Silicon Valley around the time of the tech bust. I was laid off twice in five months actually and while the first time was unnerving and scary, the second time was a walk in the park. I think the biggest factor in the somewhat irrational fear right now is fear of the unknown. Once you’ve been through it, you already know how you’ll react.
That said, in addition to the advice you gave, I suggest people come up with a ‘if shyt really hits the fan’ plan. Meaning, assume you (and your spouse, if you have one) are both out of work with no new jobs in sight. How will you manage? It’s easier to come up with a plan that’s rational and objective before your back is against the wall.
Though I personally find that scenario rather unlikely, I already know the steps I would take. The first step would be tapping the e-fund. In addition, we’d both freelance or consult or pick up whatever work we could. Also, all our expensive toys would start getting sold. I’m willing to let go of material things because they can always be acquired again. Financial peace of mind is worth much more.
Beth | Apr 10, 2008 | Reply
The recession is certainly unnerving. The scariest part for me is that I’m just graduating from college and really have no savings to speak of.
The biggest pinch I’ve been feeling is from my gas tank. I’m still going to school and have to commute an hour to my internship.
Raycal (8 comments.) | Apr 13, 2008 | Reply
I like this article and it is very scary out here. I pray that I don’t lose my job because I know I will lose everything I own after that if I’m not able to find another one within 30 days.
I have no emergency fund, I do have a savings but it’s not enough to carry me.
Young Investor (5 comments.) | Apr 17, 2008 | Reply
Recession. They are tough for a lot of people. For employees and for business owners.
I think that the best way to overcome that is to acknowledge that a recessions are part of the economic cycle and to prepare yourself so that when one hits .. so that you are not only protected but so that you are also in the position to take advantage of the opportunities that may arise during a recession.
It is a known fact that during the 1980s crash that yes a lot of ppl lost a lot of money. But during that time, the people that were cashed up made a killing of money. Buying properties and business’s for cents in the dollar!!
Neways great post and some good points that you bring up
Young Investor
http://www.investmentrealty.blogspot.com
Young Investor’s last blog post..Has School Really Taught You What You Need To KNOW?